They are the newest breed of government skeptics, the swelling ranks of Republicans who don’t believe the Obama administration when it says a failure to raise the debt limit will prove catastrophic.

And they stand ready to make negotiations over raising the cap on debt as grueling as possible, making Treasury officials and Wall Street more nervous than ever that the country could suffer an unprecedented default with consequences no one can predict.

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VIDEO: Geithner on default

POLITICO 44

The suspicion, which once flourished on only the conservative outskirts of economic circles, has seeped into the mainstream in recent weeks, gaining broader acceptance among establishment Republicans, even as the administration issues increasingly dire warnings.

House Speaker John Boehner (R-Ohio) validated the default deniers Sunday, saying, “I understand the doubts.” Jim Nussle, a budget director under former President George W. Bush, argued last week that “no one’s going to default” if Congress misses the Aug. 2 deadline. And Alabama Sen. Jeff Sessions, the top Republican on the Budget Committee, accused the White House of scare tactics similar to those used by the previous administration to win quick approval of the 2008 bank bailout after the markets crashed.

“Congress was stampeded,” Sessions said of the bailout vote. “They will have a harder time stampeding … Congress.”

The growing divide is fed by a combustible mix: deep distrust among conservatives of President Barack Obama and government in general and a hardening view among mainstream Republicans that the debt-limit vote offers the best shot in years to fundamentally reorder the country’s finances — and they can’t let it pass them by. The government hit the $14.29 trillion debt limit Monday, but Treasury took steps to keep the country afloat through August.

Within weeks of Treasury Secretary Timothy Geithner’s initial plea in January for a quick vote, Republicans gravitated toward a counternarrative, pushed first by a handful of conservative economists and ushered into the mainstream by Pennsylvania Sen. Pat Toomey on the editorial pages of The Wall Street Journal.

Now, the negotiating position of a growing number of Republicans appears to be this: If they need to hold out for a better deficit-cutting deal and blow the August deadline, so be it.

“The one acting like his hair is on fire is Mr. Geithner,” said Arizona Rep. David Schweikert. “It’s absolutely silly. We have plenty of cash flow to pay debt, which means I’m trying to figure out how credibly the administration can keep using that language.”

The doubters — backed by Wall Street — reject Geithner’s repeated claims that failing to raise the statutory cap will force the federal government into the first default in its history.

That’s hogwash, the doubters say, because the government takes in more than enough revenue to cover its obligations. They acknowledge the administration will need to make deep and painful spending cuts but argue that Geithner can avert default if he prioritizes which bills to pay.

It would be more like a partial government shutdown, Toomey said.

“That’s disruptive; that’s not optimal,” Toomey conceded in an interview. “But it’s not a financial crisis. It’s not a default on our debt. It’s not a catastrophe. It’s a disruption.”

Geithner’s response? It’s default by another name.

Even if Treasury pays its debt, other obligations, such as salaries, tax refunds and contractor payments, would go unmet, tattering the country’s creditworthiness, Geithner has argued.

In a letter Friday to Sen. Michael Bennet (D-Colo.), Geithner wrote that such an event “would inflict catastrophic, far-reaching damage to our nation’s economy, significantly reducing growth and increasing unemployment.” The value of 401(k) plans and pension funds would plummet, while the cost of buying a home or car and taking out student or business loans would rise, Geithner wrote.

“This abrupt contraction would likely push us into a double-dip recession,” the secretary warned.

Readers' Comments (358)

“I believe we could be in for the biggest debt crisis we have seen since Alexander Hamilton was treasury secretary,” Bartlett wrote.

Does that mean that the Dems and GOP will come to the table with an appreciation of the seriousness of this situation as well as critical nature deficits? What to look for is the effect of all this on Obama's reelection campaign.

You have to consider that the Republicans have not been interested in governing since Obama was elected, their only interest has been in making as much trouble as possible for Obama damn the consequences to the country. They have not proposed a rational or reasoned response to any of Obama's proposals and their negotiating tactic has been more of throwing a tantrum rather than bargaining in good faith.

Sadly the country is mired in unemployment and a recession that just lingers and the Republicans continue with their soundbites and snarkyness towards the president. Mitch McConnel is useless and an embarrassement to the Senate. And Boehner is just a cry-baby..

I am confused by this whole debt ceiling issue! There has never been the coverage we are now experiencing on a debt ceiling vote and one has to ask why? Since the mid-term elections, which, if I understand correctly, the GOP won control of the House. That represents one-third of our government. Yet, they, the GOP, act as if they are the controlling party. Now, some of their members are saying that is is NOT CRITICAL to raise the debt ceiling, since we can rob Peter, to pay Paul. Therefore, I suggest that we stop funding the retirement plan and the Insurance plan for all Congressional members until we have the funds to pay for it - and this is retroactive for all prior members. There are probably millions of American households who are doing that right now - maybe, just maybe, we should ask them if it would be critical to them to have additional limits to cover their debts.

Isn't it time to stop spending so much? If you have $10,000 a month coming in you don't continue to spend $12,000 every month. All governments need to stop spending like they have they have unlimited income.

About time we hit the ceiling. Now we can start to live within our collective income. I know, I'm a dreamer. Guilty. And I won't stop. Congress finally - a few weeks ago - passed a comprehensive FY 2011 budget. With big cuts. Cuts? Not even scratches. At least this Congress, the House anyhow, has passed an FY 2012 budget. It actually has some cuts - just not enough. So, follows my broken record litany.

How many agencies, commissions, committees ad nauseam exist in the Federal government? What does each do? Is it absolutely necessary that the Federal government do this? How much does each cost? Does anyone know? Or care? Summary - we have to cut. Not scratch. Cut. And I'm sick of ten year projections. FY 2012 needs $1.7 trillion in cuts off the President's submittal. The House started. Where is the Senate?

For the first cuts, my recommendations. Department of Education. Gone. Gone with all its' regulations and UNfunded mandates. The Department of Energy. What has it ever done? Has anyone noticed that, only inside the DC beltway, abject failures get increased budgets and authority? Add the National Endowment for the Arts and National Endowment for Humanities. Does anyone out there know why these even exist?

I know these four will not cover the projected deficit, but it is a start. Might just exceed the "cuts" made in the FY 2011 compromise.

"The value of 401(k) plans and pension funds would plummet, while the cost of buying a home or car and taking out student or business loans would rise"

If you've got your 401k or pension money in assets which are going to fall, such as US Treasuries and the overleveraged, overinflated stock market, yes, you're going to lose money, and much more than the

8% they're quoting. You're going to lose proportionately as much as the astounding amount of funny fiat money that the Fed has pumped into the stock market and monetized the debt by buying US

Treasuries with funny fiat money! Now that's just reality, and a reflection of the real value and real buying power of this funny money, or liquidity, or QE.x or whatever these Fed/Treasury/Wall Street

flimflam artists call it. You invest in crap, crap is what you get! Full faith and credit of the former U.S. hah hah

The real danger is the naked exposed un- creditworthiness of the Treasury, the megabanks, and vastly overleveraged Wall Street, all playing con games with these astronomical amounts of funny fiat money. But that too is

easy. They are NOT creditworthy. Let 'em fall, and to the Bastille with 'em.

As for interest rates, they need to rise to reflect the real creditworthiness of the borrower. Interest rates will rise the most for the real deadbeats, namely, the Treasury, Wall Street, and the Fed. If you're on Main Street, and your local bank deems you really creditworthy for a loan, and you have the job and collateral to pay it back with reasonable interest, you will get your loan. Deadbeats, both private and public, will not get loans at any price. Again, entirely reasonable.

If Liberals seriously believe that our Government will go into default if the debt ceiling is not increased, then they are dangerously dumb. What they are saying is that if their personal income were decreased by 15% they would file for bankruptcy before they would cut off their cable, ditch their cell phones, start purchasing in discount stores, sell some stuff and quit buying $7.00 coffees at Starbucks every morning and get the $1.00 kind at the gas station.

If that's the kind of people that are running the Country, it is scary because they are completely out of touch with the rest of us.

Are these idiots bankers? Are these idiots economists? What qualifies them to say this won't result in default?

I'm not a banker or an economist, either, but seems to me that Geithner, as well as other bankers and economists, would have more credibility than these politicians.

Yes, we need to do something about our debt, but it also seems to me that doing something so drastic so quickly will hurt us even more (Boehner is asking for trillions in cuts right now, before agreeing to raise the debt limit).

And I still believe that raising taxes has to be put on the table. By itself, this won't solve our debt crisis, but in addition to cuts, it will help.

"Can't prioritize payments." Timmy-Timmuh, the problem as I see it is that you're a liar and a cheat. If we default, it's entirely on you and the Liar-in-Chief. And our level of trust in the banksters at the Bank of America (which I noticed during the 9/12 march is right across the street from you and doubtlessly connected by a very well traveled tunnel) is at about zero. So, if this is such a "catastrophe", where is YOUR plan to get our financial house in order? Or do we just keep spending until we do a full "Greece" and completely blow up our economy and the socialist welfare state, ie., Cloward and Piven on steroids? (Not that you aren't doing a bang up job already.)

Cras is as cras does. The powers that be, insist on maintaining the Hollywood bohemian lifestyle. 3rd and 4th estates of the rich and famous, the taxpayers foot the bills for the 5th estates of the ruling elites!

Cras is as cras does. The powers that be, insist on maintaining the Hollywood bohemian lifestyle. 3rd and 4th estates of the rich and famous, the taxpayers foot the bills for the 5th estates of the ruling elites!

ruling elites...exactly. 200 more Obamacare waivers were recently issued. 20% of them from Pelosi's San Francisco district alone!

and what kind of businesses got these waivers? the most exclusive restaurants, hotels and spas in San Francisco. will Nancy Pelosi ever have to pay for ANYTHING again???

Stanley Druckenmiller, at one time George Soros's fund manager, and who still has $2.45 Billion of his own money in the treasuries market, had an opinion piece in the Wall Street Journal a couple of days ago.

He also thinks the scare talk is baloney.

Here's how he explained it:

You own a piece of paper A, a bond, that you're owed interest on. Those who are supposed to pay the interest have said there will be a delay in paying. But you know you'll be paid the interest owed within a short period of time, maybe a few days, maybe a few weeks. But you will be paid.

Alternatively, you own a piece of paper B. With B, the interest payments are uninterrupted. But the party paying the interest is borrowing 30 cents on every dollar they're spending. And don't show any inclination to change their behavior. You know this can't go on forever. At some point. you know the lenders will stop loaning to the borrower. At that point your piece of paper B will be worth 20, 30, 40% less than the face value.

Those of you reading this, which piece of paper do you want to own, A or B?

BTW, most people probably think this will be someone else's problem -we'll just jack up the taxes on the rich, maybe. Think again. If the government is going to owe you money in the future (social security, medicare, student loans, disability payments) you, too, will get 20, 30, 40% less than what you're think you're supposed to. Don't believe me? Ask those poor *******s in Greece.

Druckenmiller says he doesn't believe there will be a big sell-off of US government bonds if there's a delay in paying the interest. But if there is, for him, it will be an opportunity to buy. He'll put his money where his mouth is.

"Can't prioritize payments." Timmy-Timmuh, the problem as I see it is that you're a liar and a cheat. If we default, it's entirely on you and the Liar-in-Chief. And our level of trust in the banksters at the Bank of America (which I noticed during the 9/12 march is right across the street from you and doubtlessly connected by a very well traveled tunnel) is at about zero. So, if this is such a "catastrophe", where is YOUR plan to get our financial house in order? Or do we just keep spending until we do a full "Greece" and completely blow up our economy and the socialist welfare state, ie., Cloward and Piven on steroids? (Not that you aren't doing a bang up job already.)

This is the reason why we are having this debate. Those that claim that defaulting on our debt won't cause huge problems could care less about the country. All they want to do is blame President Obama for all the nations problems. They are bitter, hateful, bigots and will continue to be bitter and angry long after President Obama completes his 2nd term! They are just a bunch of losers!

Before everyone returns to their mindless attacks on the other party, may I ask: so what? How is knowing who to blame going to put food on the table and fix your bank account?

We have a simple problem here folks: spending is outstripping the government's ability to collect. There's no way they are going to raise taxes by 75%. There's no way that they're going to cut 45%. There's very few people who have any idea where those numbers come from (FY2011: 3.82 Trillion in spending, 2.17 Trillion in revenue. Do the math, round to the nearest 5%).

All projections are fantasy, because they assume that we're going to recover, while at the same time we're told that we recovered in 2009. They also assume there will never be another recession or other financial disaster, which is ludicrous.

It's not just the of our debt that's the problem -- it's the direction that we're going.